Product PriceThe cost of an “everyday low price” toy: $19.95. The cost of a Rolex watch: $2,465. A great article explaining why companies set these prices on their products: it's priceless. Wal-Mart has become the leader in "everyday low" prices, and the number one retailer has driven many companies out of business due to its pricing strategy. Recently, Wal-Mart expanded its sales niche into the toy department, putting many specialty toy stores on the verge of bankruptcy, if not out of business altogether. This article will explain how Wal-Mart priced its toy line, why Wal-Mart used toys as "loss leaders" to attract customers, and two alternative pricing methods marketers can use based on demand and reputation. of each company. Chief financial officers (CFOs) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element of the marketing mix that generates revenue. Price is also one of the most flexible elements of the marketing mix because it can be changed very quickly. This is usually done to beat competitors' prices in an attempt to keep the market value position of the product very low (Anderson and Bailey, 1998). After all, high prices make it difficult to become a leader in terms of market share. America's leading retailer, Wal-Mart, is an expert in low-cost goods, as evidenced by its $250 billion in 2004 sales from its 138 million weekly shoppers. However, they are also responsible for lowering prices to such an extent that it is driving specialty stores out of business. This is the effect Wal-Mart had on many toy stores and almost closed the doors of the popular toy store Toys "R" Us Inc. Wal-Mart set extremely low prices on toys in the part of a very successful pricing strategy to attract customers and become the leader in toy sales (Grant, 2004). This pricing strategy is called market penetration pricing. Penetration pricing is used to quickly enter the market and gain significant market share (Anderson and Bailey, 1998). These low prices have taken a toll on toy stores. Toys "R" Us is now the second largest toy seller in the United States behind Wal-Mart. Toys “R” Us was recently purchased for $6.6 million by investors who hope to transform the store into a more viable store for the entire family (D'Innocenzio, 2005). Other toy stores aren't so lucky. FAO In...... middle of document ......2004, October 12). Wal-Mart wants $10 CDs. Rolling stone. Retrieved May 2, 2005, from http://www.rollingstone.com/news/story/_/id/6558540/thekillers?pageid=rs.Home&pageregion=single1&rnd=1097616001120&has-player=unknownD'Innocenzio, A. (2005, 18 March). The Toys R Us deal could revive the industry. The San Diego Union Tribune. Retrieved April 25, 2005 from http://www.signonsandiego. com/uniontrib/20050318/news_1b18toys.html Grant, L. (October 11, 2004). Wal-Mart has no intention of playing with prices; Last year's discounts hurt other retailers and left the giant thinking it had cut too much. Request document. The United States Today. Page B8.Johnson, L. (1999). A review and conceptual framework of prestige-seeking consumer behavior. Journal of the Academy of Marketing Sciences. Retrieved May 4, 2005, from http://www.findarticles.com/p/articles/mi_qa3896/is_199901/ai_n8843016Loss leader. Retrieved May 3, 2005 from